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Credit Report

Mortgage Library: Loan Application Process: Credit report

Your ability to obtain a mortgage depends on your financial habits which are tracked by creditors. Before extending credit, lenders will want to examine the risk of not getting the money back. Credit reporting agencies receive information from credit grantors about how people have paid back bills and other credit obligations and then provide that information to those who extend credit. From this information lenders can develop an idea of just how you will handle your responsibilities once you have signed the contract for repaying the loan.

There are over 1000 local and regional credit bureaus throughout the United States. Most credit bureaus are either owned or under contract with one of the nation's three major credit reporting agencies:

These national agencies maintain centralized databases containing the credit records of more than 170-million Americans.

Make sure you know what's in your credit report before applying for a mortgage loan. That way, if there are any errors you can take steps to correct them before you make your application. It is estimated that 50% of all credit reports contain errors significant enough for an individual to be denied a loan! So we advise that you take the time to order your credit reports from all three credit reporting agencies and make certain they are accurate.

There are basically two types of credit reports available to consumers, "individual" or "merged" reports. Individual reports are provided by the three major credit reporting agencies: Experian, TransUnion and Equifax. Merged reports offer information from all three of the credit reporting agencies on one easy-to-understand, credit report.

Examine the credit report carefully to see if it is up to date and correct. If you find an error, complete the Research Request Form that is sent along with your Credit Profile, and give details of the information you believe is incorrect. Include any documentation that supports your claim. Send it certified mail. The credit bureau must correct any errors in the report. If there are unsettled disputes over certain accounts, it must also include your side of the argument in the report.

If the credit report is accurate and you have a questionable credit history, you need to start repaying outstanding balances on time in order to re-establish an acceptable record.

If you need help dealing with your debts, you may want to contact the Consumer Credit Counseling Service. CCCS has more than 1,200 offices throughout the country. This nonprofit organization can help you analyze your situation and work with you and your creditors to establish a repayment plan that will satisfy both you and your creditors. Visit also our page Credit Counseling, where you will find other agencies that assist families and individuals with financial problems.

If you know you have a credit problem, it may be to your advantage to talk about it at the time of your loan interview.

If you have not yet established a credit history, begin with a secured credit cards, which are easy to qualify for, apply for credit with a local retailer such as a department store, and remember to pay against your balance as soon as you can.

Frequently asked questions regarding credit reports

Should you order credit reports from all of the bureaus?
If you can afford it, and you want to leave nothing to chance, it's a good idea. Before offering you a home loan lenders check your credit history at two or three credit bureaus. Because the information in each bureau's files may not be the same, the only way to be confident that your credit history is reported accurately by all three major credit bureaus is to check all three reports. By requesting a consumer credit report from the three credit repositories, you can correct any errors before the mortgage lender evaluates your credit.

Are you entitled to free credit reports?
You can request a free copy of your report within 60 days of being adversely affected by information in your report. You are also entitled to a free report every twelve months if you certify that 1) you are unemployed and plan to seek employment within 60 days, 2) you are on welfare or 3) your report is inaccurate due to fraud. In addition, some states have enacted legislation that requires the three major credit bureaus to provide consumers with one free credit report per year.

What is the Fair Credit Reporting Act?
The use of consumer credit reports is controlled by a federal law known as the Fair Credit Reporting Act. This law protects consumers' rights, such as the right to review and contest information in their credit profiles. It also specifically defines who can access the information in a credit profile, and how you are notified of this activity.

Should I use one of those companies that promise to help correct my credit?
It's your choice. However, beware of companies that promise to remove accurate information from your credit file. Accurate information cannot be removed from a credit file. If you have had late payments, charge-offs, liens, judgements, etc., these will remain on your credit report for no more than seven years (ten years for bankruptcies) or until the reporting party releases you or the credit bureau decides to remove it. Nobody but the issuing credit bureau can add to or remove entries from your credit report.

Related Articles:

Shopping For a Mortgage Information that will help you shop for a mortgage most effectively.
Loan Application
Loan Approval It is important to understand what and how lenders verify when considering to extend loan. Discover steps a lender follows to process and approve your application.
If Your Loan is Denied The most common reasons for loan denials and corrective measures you can take.
Equifax Frequently Asked Questions
Tips on Credit Reporting Better Business Bureau publication.
Fair Credit Reporting Act protects consumers' rights, such as the right to review and contest information in their credit profiles.
Summary of Consumer Rights under the Fair Credit Reporting Act (FCRA).
Credit Counseling
If You Have a Complaint

Credit Grade Guide -- Determine your credit grade and estimate what type of loan terms you can expect from a lender.

Government publications:

Fair Credit Reporting (FTC) The new brochure explains the FCRA and tells consumers how to challenge inaccurate or incomplete information in their credit reports.
Solving Credit Problems (FTC) How to solve your credit problems and improve a bad credit.
Scoring for Credit Based on how well you score, a creditor may decide to extend credit to you or turn you down. This publication illustrates how credit scoring system works.

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